Manappuram General Finance & Leasing – BUY

December 28, 2007

Manappuram General Finance & Leasing is mainly involved in Loans against Gold. Almost 85% of its folio.The combined size of the loan portfolio (of MAGFIL and Manappuram Finance (Tamil Nadu) Pvt Ltd) could be Rs. 750 cr., (inclusive of off-balance sheet items) as of March 2008. As per the method of accounting followed by MAGFIL, Interest received/accrued on account of gold loan receivables assigned to its institutional lenders is credited to interest account net of interest paid /credited to these lenders on accrual basis. This portfolio size could increase by 30%+ in the coming year i.e. FY09.The average cost of funds for advancing gold loans is close to 12% and the average interest earned is around 21% – 23%. This leads to a healthy spread of 9% – 11%.

MAGFIL set up a 100% subsidiary Manappuram Insurance Brokers Pvt Ltd in 2006, which carries out life and non-life insurance broking business. MAGFIL has increased its number of offices from less than 220 as on March 2007 to 450+ across 12 states in India.The company also received convertible funds of Rs.70 cr into both these companies from private equity players like Sequoia and Hudson:

MAGFIL can be bought in the Rs.143-151 band and added on declines to Rs.114-121 band for a 12 month target of Rs.204 i.e.12 times its FY09 (E) EPS.